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Household Debt at Lowest Level Since 2006

U.S. households are holding less debt and are behind on fewer bills than at any time since before the recession began, putting consumers on a sounder footing to support a stronger economic recovery.

Total household debt, including mortgages, credit cards and auto loans, fell by $78 billion in the second quarter to $11.15 trillion, the lowest level since 2006, according to a report released Wednesday by the Federal Reserve Bank of New York.

The amount of bills 30 or more days late fell by $3.3 billion during the quarter, also reaching the lowest level in seven years.

"Households improved their overall delinquency rates for the seventh straight quarter, an encouraging sign going forward," said New York Fed economist Andrew Haughwout.

The declining debt burden largely reflects changes in the housing market. Mortgage balances fell by $91 billion during the second quarter. Some Americans are in a better position to pay down mortgage principal. Increasing housing values also are allowing sales of homes that previously were worth less than the amount owed.

While total debt is declining, the report offered signs that U.S. consumers are boosting their spending.

Mortgage originations rose to $589 billion, the seventh consecutive quarterly increase. Auto-loan balances increased $20 billion from March to June, the largest quarterly gain since 2006.

Credit-card balances increased by $8 billion during the quarter after falling to the lowest level in more than a decade earlier this year. That suggests Americans are growing confident enough in the economic recovery to finance more of their purchases with plastic.

The fraction of consumer bills that are seriously overdue also declined during the quarter. Only 5.7% of all consumer debt is 90 or more days late, the lowest rate almost five years. The delinquency rate fell in every category measured, including mortgages and credit cards.